Program & Services

Building a Better Credit Record

You see ads all over that offer ways to fix a bad credit record. These are scams to take your money. Only time, effort and a plan to repay your bills will fix your record. This article can help you understand and legally improve your credit record.

Consumer reporting agencies

Have you applied for a credit card? Or a loan or insurance? If so, there's a file about you. This file has information on where you work and live. It has information on how you pay your bills and information on whether you've been sued, arrested or filed for bankruptcy.

Consumer reporting agencies (CRAs) collect information about you. The information is called a consumer report.

Here are some commonly asked questions about consumer reports and CRAs:

Q. How do I find the CRA that has my report?

A. Look in the phone book under "credit rating and reporting." The three major credit bureaus are:

Equifax
(800) 685-1111

Experian
(888) EXPERIAN (397-3742)

Trans Union
(800) 916-8800

Anyone who denies you credit, insurance or employment based on the credit record must tell you which CRA provided the report.

Q. Do I have a right to know what's in my report?

A. Yes, the CRA must tell you everything in your report.

Q. Is there a charge for my report?

A. Sometimes, there's no charge if a company denies your application for credit, insurance or employment. Most CRAs offer one free report a year.

Q. What type of information do CRAs collect?

A. CRAs collect four types of information:

• Information about you
  Your name, birth date, Social Security number, employer and spouse's name. The CRA also may have information about your job history, home ownership, income and more.
• Payment history
  Your different credit accounts are listed. It shows how much credit you have and if you pay your bills on time or not.
• Who has asked about you
  CRAs must keep a record for one year of all credit companies who have asked for your report. It must keep a record for two years of all persons and businesses requesting your report.
• Public record information
  Bankruptcies, tax liens and more may appear in your report.

Improving your credit report

By law, both the CRA and the company that provided the information to the CRA must correct wrong information in your report.

• First, tell the CRA in writing what information is wrong. Explain why it's wrong. Request that it be corrected or taken off. Include copies (not originals) of documents that show why it is wrong. Your letter may look like the one below. Send your letter by certified mail. Get a return receipt to verify that the CRA got your letter. Keep copies of everything you send.

Sample Dispute Letter Your Name Your Address Your City, State, Zip Code Complaint Department Name of Credit Reporting Agency Address City, State, Zip Code   Dear Sir or Madam: I am writing to dispute the following information in my file. The item(s) I dispute also are circled on the attached copy of my report. This item (identify item or items by name of source, such as creditors or tax court, and identify type of item, such as credit account, judgment, etc.) is (inaccurate or incomplete) because (describe what is inaccurate or incomplete and why). I am requesting that the item be deleted (or request another change) to correct the information. Enclosed are copies of (use this sentence if you are sending copies and describe what they are, such as payment records, court documents) supporting my position. Please look into this matter and (delete or correct) the disputed item(s) as soon as possible. Sincerely, Your name Enclosures: (List what you are enclosing)

• CRAs must look into your question. It usually takes 30 days.
• Disputed information that cannot be found to be correct must be taken off your file.
  • If your report contains wrong information, the CRA must correct it.
  • If your file shows an account that belongs only to another person, the CRA must delete it.
• When the CRA is finished looking at your question, it must give you the written results. It must give you a free copy of your report if there is a change.
• If you ask, the CRA must send notices of any correction to anyone who received your report in the past six months. Or for two years for job purposes. If your dispute isn't resolved, ask the CRA to include your statement of the dispute in your file and in future reports.

When bad information is correct

When bad information in your report is correct, only time can take it off. Bad information can stay on your report for seven years. There are certain exceptions:

• Bankruptcy can be reported for 10 years.
• Credit information reported when applying for a job with a salary of more than $75,000 has no time limit.
• Information about criminal convictions has no time limit.
• Credit information reported when applying for more than $150,000 worth of credit or life insurance has no time limit.
• Information about a lawsuit or an unpaid judgment can be reported for seven years or until the statute of limitations runs out.

Adding accounts to your file

Your credit file may not have all your credit accounts. Most big department stores and all-purpose bank credit card accounts will be in your file. However, not all creditors supply information to CRAs.

Have you been denied credit because of you have a short credit file or no credit file, but you have credit accounts? Ask the CRA to add those credit accounts to future reports. However, if these companies don't report to the CRA, the added items will not be updated in your file.

Dealing with debt

Are you having trouble paying your bills? Are your accounts being turned over to debt collectors? Are you worried about losing your home or your car?

Consider these options - realistic budgeting, credit counseling, debt consolidation or bankruptcy. Which will work best for you? It depends on your level of debt, how you pay your bills and your prospects for the future.

Self-help

Developing a budget

Make a list of how much money comes in and how much money you spend. Start by listing your all your income. Then, list your expenses that are the same each month. These would be house payments or rent, car payments, insurance, etc. Next, list the expenses such as entertainment, recreation or clothing that aren't fixed. Writing down all your expenses can help you track your spending patterns. You'll see what expenses are necessary and what aren't. The goal is to make sure you can pay for the basics: housing, food, health care, insurance and education.

Are you having trouble paying your bills?

Contact your creditors now if you are having trouble paying your bills. Tell them why it's difficult for you and try to work out a payment plan that reduces your payments to a level you can pay. Don't wait until you have been turned over to a debt collector. At that point, the creditors have given up on you.

Dealing with debt collectors

The Fair Debt Collection Act is a law. It says that collectors may not call you before 8 a.m. or after 9 p.m. You may not be called at work if your employer doesn't approve. Collectors may not harass you or use unfair practices when they try to collect a debt. Debt collectors must not call you if you send them a written request.

Credit counseling

If you can't work out a way to pay your bills, credit counseling may help. Your creditors may take lower payments if you work with a credit counselling service. You deposit money each month with the service, and this money is used to pay your creditors according to a plan developed by the counselor.

You must make regular payments. Ask the credit counseling service about how long it will take you to complete the plan. Some credit counseling services charge little or nothing for managing the plan. Others charge a monthly fee. You still must pay any bills that are not included in the plan.

A debt payment plan does not erase your bad credit history. Information about your accounts can stay on your credit report for up to seven years. Creditors will report information about accounts that are handled through the plan. They may report that an account is in counseling or that some debts have been written off. Timely payments, however, will help you get credit down the road.

Auto and home loans

Most car loans allow a creditor to take back your car when you're in default. No notice is required. To get your car back, you may have to pay the full balance due on the loan. You may also have to pay towing and storage costs. If you can't do this, the creditor may sell the car. If you see that you will be defaulting on your loan, it may be better to sell the car yourself and pay off the loan. You will avoid the costs of repossession and damage to your credit report.

If you fall behind on your home loan, contact your lender now to avoid losing your home. Most lenders will work with you, especially if you're acting in good faith and the situation is temporary. Some lenders may reduce or stop your payments for a while. When you go back to regular payments, you may have to pay an additional amount to cover what is past due. Some lenders may agree to change the terms of the loan. They may extend the life of the loan to reduce the monthly payment. Ask if the lender charges to make these changes.

If you and your lender cannot work out a plan, contact a housing counseling agency. Call the local office of Housing and Urban Development (HUD) or the housing authority in your state, city or county for help near you.

Debt consolidation

You may be able to pay off your debt by getting a second mortgage or a home equity line of credit, but think carefully before doing this. You will be putting your home on the line. If you can't make the payments you could lose your home.

Bankruptcy

Personal bankruptcy is considered the debt relief tool of last resort. The results are long-lasting and far-reaching. It stays on your credit report for 10 years. It makes it hard to get credit, buy a home or get insurance. It can also make it hard to get a job. But, it offers a fresh start for people who can't pay their bills.

There are two main types of personal bankruptcy: Chapter 13 and Chapter 7. Each must be filed in federal bankruptcy court.

Chapter 13 - For people with an income and a lower amount of debt. It allows you to keep things like a house or car. The court approves a payment plan that allows you to pay off your debts during a period of three to five years, rather than lose property.

Chapter 7 - Known as straight bankruptcy. This involves selling all assets that are not exempt. Exempt property may include cars, work-related tools and basic furnishings. You can use Chapter 7 only once every six years.

Personal bankruptcy usually doesn't erase child support or alimony. It doesn't erase fines, taxes and some student loans.

Avoiding scams

Turning to a business that offers help with debt problems may seem like a good idea, but be careful. Check out the company. Call your local consumer protection agency or the Better Business Bureau.

Ads promising debt relief may be offering bankruptcy

Be wary of ads that offer quick fixes. The quick fix is usually bankruptcy. Bankruptcy is one way to deal with money problems, but it's generally the option of last resort.

Be careful and read between the lines when you see ads that say:

• Consolidate your bills into one monthly payment without borrowing
• STOP credit harassment, foreclosures, repossessions, tax levies and garnishments
• Keep your property
• Wipe out your debts! Consolidate your bills! How? By using the protection and assistance provided by federal law. For once, let the law work for you!

Advance-fee loan scams

These scams often target people with credit problems or who have difficulty getting credit. For an up front fee, these companies guarantee that you will get credit. It's usually a credit card or a loan. The fee may range from $100 to several hundred dollars. Advance-fee loans may be illegal in some states. Many honest creditors require an application fee or appraisal fee in advance, but they will never guarantee in advance that you'll get the loan.

Never give your credit card number, bank account information, or Social Security number out over the telephone unless you initiate the call.

Credit repair scams

You see the ads everywhere. They all make the same claims:

• Credit problems? No problem!
• We can erase your bad credit - 100 percent guaranteed.
• Create a new credit identity-legally.
• We can remove bankruptcies, judgments, liens and bad loans from your credit file forever!

Don't believe it. Only time and effort and a plan for repaying your debt will improve your credit report.

If you are a victim

If you think you've been scammed, contact your local consumer protection agency, state attorney general (in Maricopa County, contact the Arizona Attorney General's Office), or the Better Business Bureau.